Edexcel International Advanced Level Economics: Growth causes, benefits, costs (YEC11) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover 2.3.5 Economic growth, statements 1 to 3 (causes, benefits and costs), in the Pearson Edexcel International Advanced Subsidiary/Advanced Level Economics specification (Issue 2, June 2018). Unit 2 is an International AS unit and is also part of the full International Advanced Level. All figures are invented and illustrative. Study first with the study guide and revision notes. Hub: Edexcel A Level Economics. Checklist: printable checklist. Diagnostic: free diagnostics.

Questions

1. (a) Define potential growth. [2] (b) Country D’s real GDP rises from 1,250 to 1,300. Calculate the rate of actual growth. [2]

2. In Country E, consumption is 600, investment 150, government spending 200, exports 170 and imports 120 in year 1. In year 2 the figures are 618, 162, 204, 178 and 130. (a) Calculate the growth rate of real GDP between the two years. [3] (b) Calculate the contribution of investment to growth, in percentage points. [2]

3. Explain two ways in which international trade can support export-led growth in a small economy. [4]

4. Country A’s labour force rises from 5.0 million to 5.1 million. Output per worker rises from 30,000 to 30,750. (a) Calculate the percentage growth in real GDP. [3] (b) Explain how net migration could have contributed to this growth. [2]

5. Explain how (i) foreign direct investment and (ii) greater competition could each raise potential growth. [6]

6. Tax revenue in Country G is 28% of real GDP. Real GDP rises from 600 to 624. (a) Calculate the extra tax revenue. [3] (b) Explain how this could improve public services. [1]

7. Real GDP in Country H rises from 90 billion to 94.5 billion. Population rises from 3.0 million to 3.06 million. (a) Calculate the percentage change in real GDP per head. [3] (b) Explain why this is lower than the growth rate of real GDP. [2]

8. In Country J, growth raises national income by 50. The marginal propensity to import is 0.3. Exports rise by 8. (a) Calculate the change in imports. [2] (b) Calculate the change in net exports. [2] (c) State the effect on the trade balance. [1]

9. Real GDP in Country K rises 4.5%. Emissions per unit of output fall 3%. (a) Calculate the percentage change in total emissions. [3] (b) Explain why growth may impose an environmental cost even when technology improves. [3]

10. Average monthly income by group in Country L (illustrative currency units):

Group	Year 1	Year 2
Bottom	9.0	9.18
Middle	19.0	19.76
Top	52.0	57.2

(a) Calculate the ratio of top to bottom income in each year. [2] (b) Evaluate whether economic growth benefits all groups in society. [8]

11. Explain why growth may cause inflation, and why it does not always do so. [4]

Answers

1. (a) Potential growth is the increase in the economy’s productive capacity [1], shown by a rightward shift of LRAS or the PPF [1]. (b) (1,300 - 1,250)/1,250 x 100 [1] = 4.0% [1]. [4] Examiner insight: A definition earns credit for saying capacity rises over time; describing a rise in output alone describes actual growth. Show the base-year division even for easy arithmetic.

2. (a) Year 1 GDP = 600 + 150 + 200 + (170 - 120) = 1,000; year 2 = 618 + 162 + 204 + (178 - 130) = 1,032 [1]. Growth = 32/1,000 [1] = 3.2% [1]. (b) 12/1,000 x 100 [1] = 1.2 percentage points [1]. [5] Examiner insight: Net exports are exports minus imports, not exports alone. State the unit as percentage points, not per cent, for a contribution.

3. First: foreign demand widens the market [1], so firms gain economies of scale and lower unit costs [1]. Second: export earnings pay for imported machinery and materials [1], which raises capacity and productivity [1]. [4] Examiner insight: Each way needs a development step, not just a label. “Exports earn money” is incomplete until you say what the money does.

4. (a) Year 1 GDP = 5.0m x 30,000 = 150bn; year 2 = 5.1m x 30,750 = 156.825bn [1]. Change = 6.825bn [1]. 6.825/150 = 4.55% [1]. (b) Net migration raises the labour force (here by 2%) [1], so more workers produce more output if they find jobs [1]. [5] Examiner insight: Adding 2% and 2.5% gives about 4.5% but the exact figure is 4.55%; show the multiplication when asked to calculate. Link migration to employed workers, not population alone.

5. (i) FDI adds to the capital stock [1], which raises productive capacity [1]; it may also bring technology and skills that raise productivity [1]. (ii) Competition pressures firms to cut waste and costs [1], so output per input rises [1]; firms may also invest and innovate to avoid losing customers [1]. [6] Examiner insight: Separate the two causes clearly. An answer that says “more competition is good” without linking it to costs, efficiency or innovation stays at assertion.

6. (a) Increase in GDP = 24 [1]; 0.28 x 24 [1] = 6.72 [1]. (b) The government can spend the extra revenue on health or education without raising tax rates [1]. [4] Examiner insight: Apply the tax share to the change in GDP, not to the new total. The service link should be a mechanism, not a statement that services “improve”.

7. (a) Year 1 per head = 90bn/3.0m = 30,000; year 2 = 94.5bn/3.06m = 30,882 [1]. Change = 882 [1]. 882/30,000 = 2.94% [1]. (b) Population grew 2% [1], so output is shared among more people and per-head growth is lower than the 5% growth in total [1]. [5] Examiner insight: Dividing 5% by 2% or subtracting without checking the base gives a wrong figure. Use the per head values.

8. (a) 50 x 0.3 [1] = 15 [1]. (b) 8 - 15 [1] = -7 [1]. (c) The trade balance worsens (the deficit widens) [1]. [5] Examiner insight: Show the sign. A bare “7” loses the information that the balance moves into deficit.

9. (a) Emissions index = 1.045 x 0.97 [1] = 1.01365 [1]. Total emissions rise 1.4% (to 1 d.p.) [1]. (b) Emissions and resource use are negative externalities not fully paid for by producers [1]. A rise in total output can outweigh cleaner production per unit [1], and growth may also deplete resources or damage habitats, with costs to future generations [1]. [6] Examiner insight: Subtracting 3 from 4.5 gives 1.5%, a plausible but inexact answer. Multiply the changes.

10. (a) Year 1: 52/9 = 5.78 [1]. Year 2: 57.2/9.18 = 6.23 [1]. (b) Analysis: the top group’s income rose by 10% against 4% for the middle and 2% for the bottom [1], so the ratio widened from 5.78 to 6.23 [1]. Everyone’s income rose, so absolute living standards improved for all [1]. Growth may raise tax revenue, which could fund services that help low earners [1]. Evaluation: relative inequality rose [1]; inflation or rising rents may erode the 2% gain, so it is not clear that the bottom group is better off [1]. The outcome depends on policy, such as progressive taxes, training and benefits [1]. Conclusion: growth raised all incomes but unevenly, so it benefits all in money terms only; whether this is a benefit to all depends on distribution and prices [1]. [10] Examiner insight: A judgement that names what it depends on, using the figures in the table, shows evaluation. Repeating that growth “helps everyone” or “helps the rich” without data does not.

11. If AD grows faster than potential output, firms face capacity limits [1], so demand for labour and materials bids up wages and costs [1], so prices rise (demand-pull inflation) [1]. It does not always do so if growth comes from higher capacity, such as investment or productivity, so supply keeps pace with demand [1]. [4] Examiner insight: The qualification is where the final mark comes from. State the condition under which inflation does not occur, not just that it “may not”.

Where marks are usually lost

• Dividing by the new year rather than the base year when finding a growth rate.
• Giving the contribution of a component in per cent rather than percentage points.
• Defining actual growth when asked for potential growth, or the reverse.
• Treating net migration as the same as population growth.
• Stating a benefit without a limit, or a cost without an offset.
• Subtracting percentages instead of multiplying changes, as in emissions or per head questions.
• Writing “GDP” when real GDP is needed.
• Ending an evaluation with a summary and no judgement.

Next steps

• Review with the revision notes and the study guide.
• Course hub: Edexcel A Level Economics; tick topics off on the printable checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class: /trial/.

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics, Specification, Issue 2, June 2018, Pearson Education Limited: Unit 2, section 2.3.5 Economic growth, statements 1 to 3.